The Genuine Costs of a Vacant Position

Feb 28, 2019 Crystal Lang Crystal Lang

It’s practically inevitable that a company will have at least one vacant position at any given time. This could be because an employee earns a promotion, takes a job at another company, or is terminated. Despite not paying an employee’s salary anymore, a job vacancy does not necessarily mean that money is being saved. How such employment vacancies affect their business should be a significant concern for every company.

According to an article in ERE by Dr. John Sullivan, the cost of vacancy (COV) is used to “determine the actual business impact of talent shortages that result from a gap between the time talent is needed and the time required by the recruiting function to supply such talent.”

How much does a vacant position cost, and how are those costs measured?

What is the Cost of a Vacant Position?

Vacant position costs can vary depending on a variety of factors. In general, vacancy costs can be broken down into three primary categories:

  • The Hard Costs of a Vacant Position — When there is a job vacancy, it means that the work that would have been completed by a person in that role still needs to be accounted for in some way. This can be done either by contracting the services of a temporary or contract employee, or by paying other employees overtime to help make up the work. There also is the concern of employee turnover costs. Citing information from Josh Bersin of Deloitte, The Huffington Post states that there are additional expenses when it comes to the cost of hiring an employee to fill your vacant position. These costs relate to “hiring, onboarding, training, ramp time to peak productivity, the loss of engagement from others due to high turnover, higher business error rates, and general culture impacts.”

  • The Soft Costs of a Vacant Position — Lack of productivity is the most obvious example of a soft vacancy cost, but there are quite a few others. Additional vacant position costs that fall within this category include impacts to employee morale, customer service, and your company’s image or reputation in the eyes of customers and competitors alike.

  • Lost Opportunities That Result from a Vacant Position — When productivity is down, it affects your bottom line in several ways. Not only does it mean that you’re potentially paying extra money in overtime costs, but you’re also missing out on business and product development opportunities that you can’t take advantage of or explore with strained operations. This, in turn, thwarts your business’ growth and stifles its ability to scale.

According to the ERE article cited above, research shows that an “individual’s value is between one and three times their salary (a Harvard study found that it was three times a person’s salary, which many analysts have found to be an accurate estimate).”

How to Calculate Vacancy Costs for Your Business

The longer that a position remains open, the more costly that job vacancy becomes. According to Dr. John Sullivan, a human resource and talent management thought leader, the cost of a vacant position can be calculated by:

  • Using a simple salary multiplier
  • Using a simple multiplier of lost revenue
  • Assessing the average revenue lost (overall or per employee)
  • The budget expenditure lost per employee

If you were to use the simple salary multiplier method, for example, here’s how that would look: Let’s assume a position that pays $50,000 a year has just become vacant. How do we calculate the estimated cost of the job vacancy for a 60-day period?

  • Divide $50,000 by 260 (the average number of work days per year), which equals $192.31 per workday.
  • Multiply this by a productivity multiplier of 2 (if we were to choose to use the median of the Harvard study’s estimate of one to three times the cost of salary), and this gives us a total cost of vacancy of $384.62 per workday.
  • If the position is vacant for 60 days, this gives us a total cost of vacancy of $23,076 for those two months.

How Time Affects Job Vacancy Costs

According to research from Deloitte, it can take 70 days to hire skilled production workers and more than 90 days to recruit highly skilled workers (such as engineers, researchers, and scientists).

Knowing that a $50,000 position that sits open for two months can result in more than $23,000 in COV is rough. Now, imagine how much more it will cost your business to have any vacant scientist or engineer positions that have salaries surpassing $100,000 each. You’re talking about a significant amount of potential productivity and lost revenue.

How a Recruiting and Staffing Agency Can Reduce COV

To minimize vacancy costs as much as possible, some companies choose to work with a professional recruiting firm like 4 Corner Resources (4CR) to help fill their open positions. Our staffing agency helps large and small businesses alike meet their staffing needs by recruiting, screening, and placing the ideal candidates.

4 Corner Resources is an award-winning staffing agency headquartered in Orlando, Florida. We serve businesses in numerous industries throughout central Florida and across the United States by offering a variety of direct hire, contract-to-hire, and temporary staffing solutions.

Contact our team of recruiting experts today to get answers to your questions.

recruit-and-hire-tip-sheet

How to Recruit and Hire in Low Unemployment

Here’s your guide to help tackle hiring in this very competitive job market.

Download Now

Related Articles

More Articles On Recruiting & Staffing